Fed rate cut triggers financial markets

Kia ora,

Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news a risk-on shift will start the week in most major economies.

As we wind down September this week here, into both school holidays upcoming and daylight saving on the weekend, the key focus will shift to Fonterra's results on Wednesday, and local consumer sentiment on Friday.

And tomorrow the RBA will review its monetary policy settings including its cash rate target. Despite the continuing inflation pressures, no-one really expects them to alter their existing 4.35% policy rate this time. Oddly that comes a day before they release their August monthly CPI report, which is expected to slip from 3.5% to 3.1%. They hope so at least. And a day after that they release their Financial Stability Report.

In the US, the key focus will be on PCE prices, personal income and spending reports. They are expected to validate the Fed rate-cut move. And they will release their final Q2 GDP report, PMI data, consumer confidence, durable goods orders, and both new and pending home sales data too. There will be September PMI reports from many other economies as well.

Over the weekend, China left its loan prime rates unchanged in its September fixing, as expected. These remain at record lows.

And their 'youth' (16-24) unemployment rate was 18.8% in August according to official data, the highest since they changed the basis of this stat in January. They say their general jobless rate is 5.4%, and that too is its highest in a year.

And don't forget, next week is China's National Day Golden Week from October 1 to October 7. Most businesses and factories in China will be closed for the holiday. This extended shutdown will significantly impact international supply chains.

Japan reported 3.0% CPI inflation in August, up from 2.8% in the prior three months. It is their highest level since October 2023. Japanese inflation now seems well embedded, after decades of deflation.

The Japanese central bank left its 0.25% policy rate unchanged, as expected late on Friday. They said "Japan's economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions." But press conference remarks after the release suggests that the Bank has turned dovish, so expectations for more rate hikes are lower now.

India's economic surge is built on aggressive borrowing. Loan growth is running higher than +13% from the same month a year ago, even if that is lower than the almost 20% rate it was running in the same month in 2023.

Canadian retail sales rose more strongly than expected in July, up +0.9% from a year ago when a +0.6% rise was expected. A key driver was car sales. And these retail rises are expected to continue as a new sense of optimism grows in Canada.

Consumer sentiment in the EU continues to rise, in spite of their obvious economic struggles. In fact, it is almost back to its long-run average levels, something it hasn't managed since the pandemic period.

The UST 10yr yield is now at just on 3.74% and up +1 from Saturday. But that is up +8 bps from a week ago.

The price of gold will start today at US$2621/oz and up +US$1 from Saturday to near a new all-time high again. That is a +1.5% rise from a week ago when it was US$2582/oz.

Oil prices are unchanged at US$71/bbl in the US while the international Brent price is still just on US$74.50/bbl.

The Kiwi dollar starts today at 62.4 USc and little-changed from Saturday but up +80 bps from a week ago. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we are still at 55.9 euro cents. That all means our TWI-5 starts today at 69.9, unchanged from Saturday but up +60 bps from a week ago.

The bitcoin price starts today at US$63,055 and +0.9% from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.8%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.